Frontrunning: July 26

  • The Citadel-SAC connection (BBG) - just wait until the Citadel-FRBNY connection emerges

  • Letter backs Yellen for Federal Reserve role (FT) - or said otherwise, the Democrats would like the Fed to rule (and monetize deficits) for ever

  • Obama, Republicans gear up for bruising U.S. budget fight (Reuters)

  • Up for Debate at Fed: A Sharper Easy-Money Message (WSJ)

  • UBS to Pay $885 Million to Settle U.S. Mortgage Suit (BBG), Banks shiver as UBS swallows $885 million U.S. fine (Reuters)

  • Japan finmin Aso: CPI shows gradual shift to inflation from deflation (Reuters)

  • Japan's PM calls for high-level talks with China (Reuters)

  • Holder Targets Texas in New Voting-Rights Push (WSJ)

  • Another Nightmareliner incident: Probe opened as Air India Boeing Dreamliner oven overheats midair (Reuters)

  • Samsung Boosts Capital Spending as High-End Phone Demand Slows (BBG)

  • Zynga Drops After Abandoning U.S. Online-Betting Plan (BBG)

  • Egypt's Mursi accused of murder, kidnapping before rallies (Reuters)

Overnight Media DigestWSJ
* A Justice Department investigation shines a light on federal authorities' broader scrutiny of physician-owned distributorships. Distributorships act as intermediaries between medical-device makers and hospitals and get a cut of each sale. When surgeons own the distributorship, that commission goes into their pockets. And since surgeons often dictate to their hospitals which devices to buy, they can effectively steer business to themselves.

* The Obama administration will use a new legal strategy to try to scrutinize states for possible discrimination against minority voters, Attorney General Eric Holder said.

* Halliburton Co will plead guilty to destroying evidence in the wake of the April 2010 Deepwater Horizon disaster. The government said Thursday that the company, a contractor involved in drilling the oil well that exploded in the Gulf of Mexico, destroyed computer simulations it performed in the months after the accident.

* More than a dozen companies were the target of what prosecutors described as one of the largest data breaches uncovered to date, which resulted in "hundreds of millions of dollars" in losses.

* GlaxoSmithKline has named a new head of its business in China amid a government bribery probe that has shaken the company's senior management.

* With its new 24-hour sports cable network launching August 17, Fox hopes to mount a serious offensive on ESPN's moneymaking machine. It is a challenge where others so far have failed.

* Zynga provided little assurance that its business was on the mend as the online game company posted a small loss on a 31 percent drop in revenue.

* Canadian Natural Resources Ltd, Canada's largest independent oil producer, has been unable to stop a series of leaks from underground wells, according to regulators in Alberta, raising questions about a technology the industry has championed as less environmentally disruptive than the open-pit mining of oil sands.

* Samsung Electronics Co Ltd said its profit rose 50 percent on solid smartphone sales, but earnings momentum showed signs of slowing with margins squeezed by high marketing costs.

* Prosecutors are seeking forfeiture of about $10 billion from SAC Capital Advisors, one of the country's largest hedge-fund firms, as they accused the hedge-fund firm of insider trading on an unprecedented scale.

* Time Warner Cable Inc named chief operating officer Rob Marcus to succeed Glenn Britt as chief executive, resolving a question hanging over the No. 2 U.S. cable operator as it comes under takeover pressure.

* The pending $4.7 billion sale of Smithfield Foods Inc , the world's largest pork producer, to a Chinese company, has provoked health safety questions about the impact on America's supply of the heart-disease drug heparin. In addition to pork products, Smithfield is one of the largest U.S.-based suppliers of crude heparin, the starting material for a crucial blood thinner used by some 12 million American patients.

* The world will use far more of every type of energy in coming decades, the U.S. Energy Department said in a report that predicts China and India will drive growing consumption.


U.S. prosecutors filed criminal charges against billionaire Steven A. Cohen's $14 billion hedge fund, SAC Capital, in the biggest blow yet in their crackdown on insider trading, a move that could end the career of one of Wall Street's most successful investors.

Jeff Bezos-led Inc reported an unexpected second-quarter net loss of $7 million, pushing its shares down, which might cast doubts over the online retailer's ability to generate long-term profits.

Shares in Zynga Inc fell more than 14 percent in after-hours trading on Thursday after it said it would abandon its long-running efforts to build a real-money gaming business in the United States and warned of tough times ahead.

GlaxoSmithKline Plc has replaced the head of operations in China with one of its top European executives, amid a widening corruption scandal in China that has rocked Britain's biggest drugmaker.

U.S. prosecutors said on Thursday they have charged five men with the theft of 160 million credit card numbers as part of a hacking organisation, resulting in what they said will be the largest hacking and data breach scheme ever prosecuted in the United States.

Former Goldman Sachs trader Fabrice Tourre on Thursday said he "deeply" regretted an email in which he joked about selling subprime mortgage bonds "to widows and orphans", after being grilled by lawyers in a securities fraud trial.


* Federal authorities have delivered a crippling blow to one of Wall Street's most successful firms, SAC Capital Advisors, which has drawn government scrutiny for more than a decade.

* Halliburton Co has agreed to plead guilty to destruction of critical evidence after the Gulf of Mexico spill in 2010. The oil services company will pay the maximum allowable fine and be subject to three years of probation, the Justice Department said.

* Five Eastern European computer programmers were charged by the United States attorney in New Jersey with hacking into the servers of more than a dozen large American companies and stealing 160 million credit card numbers in what the authorities called the largest hacking and data breach case ever.

* Fabrice Tourre's legal team worked to rehabilitate his image in court on Thursday, trying to show a sympathetic side of the ex-trader.

* The choice of who will succeed Ben Bernanke to lead the Federal Reserve is roiling Washington as it revives questions about the dearth of women in its top economic policy positions.

* Top leaders of the A.F.L.-C.I.O., the nation's main federation of labor unions, on Thursday called on President Obama and the Congress to offer an immediate financial infusion to Detroit, which last week became the largest American city ever to file for bankruptcy.

* Three academics set out to see whether there were any clear differences between chief executives of companies where fraud was committed and chiefs of similar companies where fraud did not take place - or at least where it was never detected. And they found evidence that those who are willing to violate other rules are also more willing to violate securities laws.

* Amazon's razor-thin profits turned to razor-thin losses in the last quarter, as the Internet commerce giant continued to plow money into warehouses, digital content and other big investments that it says will pay off down the line.

* A senior Democrat has proposed that the United States seek stronger trade agreements that would better protect the economy.



* The Royal Canadian Mounted Police are investigating Senator Mac Harb for alleged breach of trust over travel and expense claims he submitted for nearly 10 years between 2003 and 2013.

* Justin Trudeau's enthusiastic embrace of the legalization of marijuana has fired up the debate over Canadian drug laws and exposed stark differences among major political parties on the way to treat the country's numerous pot smokers. The stand places the Liberal Party on a collision course on the road to the 2015 elections with the Conservative government.

* Federal justice minister Peter MacKay says the Conservative government is considering changes to impaired driving legislation in the Criminal Code. MacKay said he wanted to meet with more victims of impaired driving before announcing the changes the government is contemplating.

Reports in the business section:

* BCE Inc's George Cope is the latest chief executive of a major wireless carrier to argue in recent days that Ottawa has taken a wrong turn in its attempts to ensure there is a fourth wireless player in every regional market.

Cope said he had received assurances from the federal government a year ago that deep-pocketed foreign telecoms such as Verizon Communications Inc would not use "loopholes" in Ottawa's wireless policy to enter the Canadian market.

* Crop nutrients producer Potash Corp of Saskatchewan Inc cut its earnings outlook for the year as it struggles with tough market conditions and low prices.

* The average Canadian household net worth broke C$400,000 at the end of 2012, beating its American neighbors once again. But the gap has narrowed to C$19,000, half of what it was last year.

* Goldcorp Inc says it is looking to improve efficiency and reduce costs at its Penasquito mine in Mexico, after falling gold prices forced the company to write down the project's value and led to a $1.93 billion net loss in the second quarter.


* At a time when corruption scandals have given Quebec mayors a bad name, Colette Roy-Laroche is providing a welcome boost to the image of municipal leaders, receiving praise for her efforts to unite the town of Lac-Megantic after the devastating rail disaster.

* As sex abuse lawsuits mount, the full story of Vancouver Olympics Chief Executive John Furlong has yet to be told. Former students of his from Burns Lake have sued Furlong alleging sexual molestation.

* Bulgarian authorities have named a Canadian man, Hassan El Hajj Hassan, 25, as a wanted fugitive and suspected Hezbollah operative involved in last year's bombing of a tourist bus at an airport on Bulgaria's coast that killed five Israelis and their local driver.

* Senator Mac Harb allegedly claimed a Senate housing allowance on a home that was "uninhabitable" for three years and in which he only had a 0.01 per cent stake for another four years, the Royal Canadian Mounted Police allege in a court document.


* Calgary-based Expander Energy is trying to convert greenhouse gases generated by oil sands processing from an environmental liability into big profits.

* Writedowns, plummeting profits and a vast range of realized prices have been key themes in the second-quarter gold earnings reports. Most importantly, the miners are unveiling the cost and capital spending reductions they merely hinted at for most of the year.

* Loblaw Cos Ltd is being overly optimistic in projecting $300 million of synergies in three years after the purchase of Shoppers Drug Mart Ltd, according to Perry Caicco, a retail analyst at CIBC Capital Markets.

* The downturn in the mining industry is beginning to ripple through brokerage firms and investment banks in Canada, as firms cut jobs, consolidate or close.

* A release of methane from thawing permafrost under the East Siberian Sea in the Arctic could speed the melting of sea ice and climate change, with a cost to the global economy of up to $60 trillion over coming decades, according to a paper published in the journal Nature.



- China is expected to start a railway development fund this year, which plans to raise 100 billion yuan ($16.30 billion), with a focus on development of line construction in poor areas in the country's central and western regions, Premier Li Keqiang said at a State Council executive meeting on Wednesday.


- Bank of China has been chosen for a pilot programme that will allow overseas branches of Chinese companies to remit offshore yuan back onshore to pay employee salaries, bypassing current daily limits on remittance of offshore yuan.


- The ministry of industry and information technology released on Thursday a list of companies with outdated production facilities that will be closed by September. The list covered 19 industries, including cement and paper and names 19 listed companies.


- China's non-governmental organisations, charitable foundations and private non-enterprise units, among others, may in the future be able to provide pensions for their employees, according to a paper published recently by the ministry of civil affairs.

Fly On The Wall 7:00 AM Market Snapshot



Advance Auto Parts (AAP) upgraded to Buy from Hold at Deutsche Bank
Baidu (BIDU) upgraded to Overweight from Equal Weight at Morgan Stanley
BankUnited (BKU) upgraded to Outperform from Market Perform at Keefe Bruyette
Gilead (GILD) upgraded to Overweight from Neutral at Atlantic Equities
Kennametal (KMT) upgraded to Buy from Hold at BB&T
L-3 Communications (LLL) upgraded to Neutral from Underperform at BofA/Merrill
LVMH Moet Hennessy (LVMUY) upgraded to Buy from Neutral at UBS
Lazard (LAZ) upgraded to Neutral from Sell at UBS
Meritage Homes (MTH) upgraded to Buy from Fair Value at CRT Capital
OpenTable (OPEN) upgraded to Buy from Neutral at Goldman
Raytheon (RTN) upgraded to Neutral from Underperform at BofA/Merrill
Tesla (TSLA) upgraded to Buy from Hold at Deutsche Bank
VCA Antech (WOOF) upgraded to Overweight from Neutral at Piper Jaffray
Vantiv (VNTV) upgraded to Buy from Neutral at UBS
VeriSign (VRSN) upgraded to Buy from Neutral at B. Riley


Bed Bath & Beyond (BBBY) downgraded to Hold from Buy at Deutsche Bank
Cerner (CERN) downgraded to Neutral from Outperform at RW Baird
Convergys (CVG) downgraded to Neutral from Buy at Citigroup
DXP Enterprises (DXPE) downgraded to Neutral from Buy at Ascendiant
Flir Systems (FLIR) downgraded to Hold from Buy at KeyBanc
Freescale (FSL) downgraded to Perform from Outperform at Oppenheimer
Global Payments (GPN) downgraded to Neutral from Buy at UBS
IPC The Hospitalist Co. (IPCM) downgraded to Hold from Buy at Deutsche Bank
Kennametal (KMT) downgraded to Neutral from Overweight at JPMorgan
Lakeland Bancorp (LBAI) downgraded to Market Perform at Keefe Bruyette
Maxim Integrated (MXIM) downgraded to Neutral from Buy at UBS
Meritage Homes (MTH) downgraded to Equal Weight from Overweight at Barclays
Pernix Therapeutics (PTX) downgraded to Sell from Hold at Cantor
Precision Castparts (PCP) downgraded to Hold from Buy at Deutsche Bank
PulteGroup (PHM) downgraded to Equal Weight from Overweight at Barclays
Robert Half (RHI) downgraded to Equal Weight from Overweight at Barclays
Seadrill (SDRL) downgraded to Neutral from Overweight at HSBC
Southwest (LUV) downgraded to Market Perform from Outperform at Raymond James
Stewart (STC) downgraded to Market Perform from Outperform at FBR Capital
Vantiv (VNTV) downgraded to Market Perform from Outperform at Wells Fargo
Vertex (VRTX) downgraded to Neutral from Buy at UBS


Cardiovascular Systems (CSII) initiated with a Buy at Wunderlich
Delphi Automotive (DLPH) initiated with an Outperform at Wells Fargo
Goodrich Petroleum (GDP) coverage assumed with a to Buy at Canaccord
Vishay (VSH) initiated with a Buy at BofA/Merrill


Activision (ATVI) bought 429M shares from Vivendi (VIVHY) for $13.60 or $5.8B
W.P. Carey (WPC) announced proposed merger with CPA:16 - Global Inc.
in a deal valued at about $4B
UBS (UBS) to pay $885M to settle claims with FHFA (FNMA, FMCC)
Halliburton (HAL) pleads guilty in DOJ suit over Deepwater Horizon spill
Zynga (ZNGA) won’t pursue license for real money gaming in U.S.
Viad (VVI) sees FY13 revenue down at a mid single-digit rate vs. FY12
Stanley Black & Decker (SWK) sees stronger 2H13 organic growth performance
CBS (CBS) increased authorization of its share repurchase program to $6B
Time Warner Cable (TWC) announced $4B share repurchase program
Halliburton (HAL) to repurchase up to $3.3B of stock in Dutch auction


Companies that beat consensus earnings expectations last night and today include:
Helmerich & Payne (HP), Viad (VVI), Tyco (TYC), Stanley Black & Decker (SWK), Newmont Mining (NEM), Activision Blizzard (ATVI), Olin Corp. (OLN), KLA-Tencor (KLAC), Dresser-Rand (DRC), Cliffs Natural (CLF), NetSuite (N), Leggett & Platt (LEG), QLogic (QLGC), VeriSign (VRSN), Edwards Lifesciences (EW), Chubb (CB), Zynga (ZNGA), Netgear (NTGR), Deckers Outdoor (DECK), Starbucks (SBUX)

Companies that missed consensus earnings expectations include:
Forum Energy (FET), Basic Energy (BAS), Triumph Group (TGI), Dole Food (DOLE), Newpark Resources (NR), Republic Services (RSG), Tempur-Pedic (TPX), Woodward (WWD), (AMZN), Expedia (EXPE)

Companies that matched consensus earnings expectations include:
Key Energy (KEG), Informatica (INFA), Cerner (CERN), Gilead (GILD), Echo Global (ECHO)


  • Federal prosecutors charged a cadre of Eastern European hackers with stealing credit-card information and other personal data from companies including Nasdaq OMX (NDAQ) and J.C. Penney (JCP) in a computer crime spree that ran for more than half a decade and netted hundreds of millions of dollars, the Wall Street Journal reports

  • Facebook (FB) is making marketers feel more comfortable with spending money on the social network. It’s benefiting simply because it is one of the few online outlets with a big enough audience for the rapidly expanding group of marketers wanting to put money into mobile, the Wall Street Journal reports

  • In China, time looks to be on the side of Samsung Electronics (SSNLF), not Apple (AAPL), which now has three times the number of retail stores as Apple, and has been more aggressive in courting consumers and creating partnerships with phone operators. It also appears to be in better position to fend off homegrown competitors, Reuters reports

  • GM’s (GM) South Korean workers have approved an annual wage deal, ending 13 days of partial strikes at the base where the U.S. automaker produces over 40% of its Chevy-branded cars, Reuters reports

  • Goldman Sachs (GS) CEO Lloyd Blankein said a lack of U.S. business appetite for risk is constraining a recovery in the world’s largest economy, Bloomberg reports

  • The market for borrowing and lending U.S. government debt, after shrinking 31% in the past five years, risks contracting further as global regulators consider raising capital and leverage standards for banks, Bloomberg reports


Carmike Cinemas (CKEC) 4.5M share Secondary priced at $18.00
Liquid Holdings (LIQD) 3.175M share IPO priced at $9.00

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